DUKAKIS STRIKES OUT ON STUDENT LOANS

Many years ago a literary critic pronounced judgment on a work he had been asked to review. "The parts that are original," he said, "are not good. And the parts that are good are not original."

Much the same comment might be made of the proposal advanced by Michael Dukakis for a new program of guaranteed student loans. The idea of linking repayment to income is a good idea, but clearly it is not a new idea. Indeed, the Dukakis plan in many respects is strikingly similar to the experiment in "income-contingent loans" launched by Education Secretary William Bennett last January. Ten universities now are testing the Bennett plan.Bennett's loans would be available only to low-income students. The loans, repayable over a period of 30 years, would come from a fund created jointly by the federal government and the participating institutions. As the borrower's income increased, his rate of payment would increase. The plan would provide a flexibility not present in existing student loan programs.

Dukakis has a different idea. He would create a new entitlement program available to every person wishing to attend college. Loans would come from banks, but the government would guarantee their repayment. The student, upon graduation, would repay the government by a surtax on his individual income tax. This surtax, calculated at 0.25 percent per thousand dollars borrowed, would be payable for life. As an alternative, the borrower could make a lump sum retirement of the debt by paying a substantial penalty.

It sounds complicated, and it is. An example may help. Suppose that an 18-year-old in 1990 borrows $12,000 a year for four years. At his graduation, the student owes the bank $48,000. He is 22; he now has subjected himself for the rest of his life to an additional 12 percent on his rate of income tax.

Assume a starting salary of $2,000 a month. The graduate's employer would first deduct $348 a month in ordinary income tax. The employer would then deduct an additional $240 toward repayment of the loan. The employer also would deduct $150.20 in Social Security taxes, plus whatever state income taxes might apply. The employee is now down to $1,261.80.

A Dukakis loan would be repayable for life. With inflation, it would be repayable in cheaper dollars, but the nagging burden would never go away. Sudden thought: Why would banks want this deal?

Suppose that our hypothetical student marries. His wife also has borrowed $48,000, but as mother and homemaker she has no cash income on which a tax may be levied. What of her loan? Either the $240 monthly payment must be imposed on her husband, or other borrowers - or the taxpayers generally - will have to pick up the tab.

Under the Dukakis plan, students going into the most lucrative professions, such as law and medicine, would have no incentive to borrow in the first place. Over their lifetimes they would repay far more than their original loans. By contrast, those students who look for careers as teachers or newspaper reporters would repay less than the principal and interest.

Even though the loans would go from banks to students, the federal guarantee would add significantly to the federal deficit. It is entirely probable that under a Dukakis administration, income tax rates would go up, thus increasing the total burden upon the borrower. Meanwhile, college administrators would have every reason to rub their hands and raise their fees. They would be rolling in guaranteed income.

All this is a far cry from the old days, when students from low-income families were expected to work their way through college. Maybe the old days weren't all that hot, but it's hard to believe that national mores have changed so radically over the past 50 years that borrowing has become a fine thing and independence a bad thing. Dukakis would offer every youngster an opportunity to go deeply in debt. That's an original idea, but as the critic said, it is not a good idea.